Weekly Market Report – 08 November 2020
Uncertainty over the outcome of the US election and damage caused by Hurricane Eta to many areas in Central America helped to turn around the bearish trend in arabica coffee prices this week. Arabica coffee prices gained 2.60 cents/lb over the week. Robusta coffee prices however did not follow suit despite the fact that the weather in Vietnam appears to be delaying the harvest. Robusta coffee prices finished the week $1/ton (0.05 cents/lb) lower. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 20 toea/kg higher than what they were last week.
Hurricane Eta has caused devastation to many areas in Central America mainly hitting infrastructure such as roads and bridges etc but also causing over 50 deaths this week. It is however, still too early to say whether this will have any significant impact on coffee output from the region. The latest data from the ICO indicates that global coffee exports amounted to 10.16 million bags in September 2020, up 0.8% compared with 10.08 million in September 2019. In the 12 months ending September 2020, exports of arabica totalled 78.21 million bags compared to 84.08 million bags last year; whereas robusta exports amounted to 48.69 million bags compared to 49.38 million bags. A report from the Brazilian Bank Itau suggests that the country’s 2021/22 coffee crop could shrink by between 14 % to 21 % compared with the output this year, due to below average rains and the off-year in Brazil’s biennial arabica production cycle. They suggest that global balance will therefore shift from a 9.8 million surplus to a deficit of between 1.7 to 6.5 million bags. A few other analysts have also made similar predictions with some making the comparison between the weather this year and that seen in 1985. There was a long hot dry season that year that also caused significant damage to the crop despite healthy rains in October and November. It was interesting to note that Starbucks has announced plans to expand to Laos, opening a store in the capital city, Vientiane, by the middle of next year. This will bring the number of Starbucks stores in Asia to more than 10,000.
Once again there have not been any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable) suggest that movements in physical price differentials may have been mixed this week. Brazilian 3 /4’s, however, appear to be higher at around minus 18/19; Honduras HG’s are slightly lower at plus 18; but Kenya AB FAQ’s, appear to be steady at plus 75/90; Colombian UGQ’s are also steady at plus 48; as are PNG Y1’s at plus 7. If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 115.45 and 117.45 cents/lb.
There appears to be a relatively solid floor of around 102 cents/lb in New York (spot position) below which arabica coffee prices, at the moment, meet significant resistance. Prices are currently well above this, but the fact that there is such resistance is reasonably positive looking forward to how prices might develop over the next few weeks. In addition the weaker dollar resulting from the uncertainty over the outcome of the US elections has certainly aided coffee prices this week and whilst things may well become clearer in the next few days, the confusion is likely to continue, thus continuing to put pressure on the currency. The outlook therefore is reasonably positive, and prices might finish the week slightly higher.